FAQs

What influences the EBITDA multiple in a company valuation?

Key factors include growth potential, risk profile, cost of capital, management independence, customer concentration, contract stability, profitability, market conditions, and offer structure.

How does growth potential affect valuation?

Companies with strong growth trends often attract higher valuations, as buyers see more future upside and are willing to pay a premium.

Why is business risk important for valuation?

Higher risks (such as poor product quality or high employee turnover) lower valuation because buyers anticipate greater challenges and potential losses.

How does the cost of capital affect a company’s value?

If buyers have access to better investment opportunities, they’ll only invest in your business if it offers comparable or better returns.

Why does management independence matter in valuation?

A company that runs smoothly without the owner’s daily involvement is more valuable, as it signals stability and scalability to potential buyers.

What’s the problem with relying on one major client?

If one client generates more than 10–20% of revenue, the business is considered high risk, as losing that client can severely impact performance.

Do long-term contracts increase valuation?

Yes, long-term or exclusive contracts provide revenue predictability, which makes the business more attractive and less risky for buyers.

Why is profit margin more important than revenue?

Revenue shows how much money comes in, but profit margin shows how much the company actually keeps. A smaller company with better margins can be healthier and more valuable than a larger one with weak profits.

How does the market environment affect company valuation?

Economic cycles impact demand, credit access, and buyer appetite. Selling during a market upswing usually results in better offers.

What should I consider in an acquisition offer?

Beyond the headline price, look at payment terms, conditions, timing, and risks. A structured deal with delays or performance clauses may be worth far less than it seems.